ECJ decision pivotal in debate over Germany’s green subsidies

A complaint raised by a Finnish wind turbine operator in the European Court of Justice (ECJ) could add an unpredictable dynamic to the debate over the German Renewable Energy Sources Act (EEG), with experts forecasting rising energy costs and the end of exclusively national green energy subsidisation. EURACTIV Germany reports.

The squabble between the European Commission and the German government over reforming the Renewable Energy Sources Act (EEG) could flare up again.

An imminent ruling by the European Court of Justice (ECJ) could ban the restriction of green energy subsidisation to only German producers.

As a result, many experts say, consumers could face a hike in energy costs while the ongoing EEG amendment process could face yet another amendment.

The trigger in this case was a wind farm operator on the Finnish islands of Åland. The producer there supplies Sweden with power, but does not receive any extra funding for providing green energy. A complaint was filed before the ECJ, claiming the exclusion from Swedish subsidies amounts to unfair discrimination and is a violation of the free movement of goods within the EU internal market.

In an opinion submitted at the end of January, ECJ Advocate-General Yves Bot expressed a clear evaluation: Territorial restrictions on access to national subsidy schemes for renewables are not compatible with the fundamental right to free movement of goods.

If green energy is produced in Denmark and fed into Germany, for example, the producer could claim support according to the rules laid down in Germany’s EEG.

Advocate-General Bot calls for an elimination of existing inequalities in renewables subsidisation among EU countries within two years. For the most part, the European judges follow the plea of the Advocate-General. The ruling of the ECJ’s Grand Chamber will be announced on 2 July.

German government: EEG will be untouched

But the German federal government does not share the legal opinion of Advocate-General Bot. Instead, Berlin is convinced that the disputed provision in the Renewable Energy Directive is compatible with the EU’s fundamental rights.

“The Advocate-General’s opinions are not binding for the ECJ. So it is totally uncertain whether [the Court] will follow it”, explained a spokeswoman from the German Ministry of Economic Affairs, speaking with EURACTIV Germany.

Regardless of which decision the ECJ will make: The two support schemes for expanding renewable energies in Sweden and in German are hardly comparable. The investigation concerns a certificates model. In Germany, on the other hand, promotion of renewables is supported under the framework of a feed-in model, the ministry said.

But Götz Reichert, an energy expert at the Centrum für Europäische Politik (CEP), expressed a different view in a statement for EURACTIV Germany: “If the ECJ actually follows the Advocate-General, then this will also affect the German EEG.”

Up until now, green energy support was restricted to only subsidising national producers in Germany.

“This partitioning would hardly be able to continue”, explained the energy expert. Because, he said, regarding admissibility – of quotas as well as feed-in models – it ultimately depends on whether these are a justifiable derogation of the free movement of goods guaranteed under EU law, based on environmental protection.

But here in particular, there is considerable doubt over whether or not a European approach is superior to national support schemes. If this ends up being the case, Germany too could be required to extend the EEG’s support scheme to foreign energy providers after a certain transition period, said Reichert.

“Significant destabilisation of prevailing circumstances”

The German Renewable Energy Federation (BEE) fears “significant destabilisation” of political circumstances in the wake of the ECJ’s ruling. “It would strongly upset investors for renewable energies,” explained Rainer Hinrichs-Rahlwes, member of the BEE executive board in an interview with EURACTIV Germany.

The Cologne Institute for Economic Research (IW) also warned of rising energy prices. “Without corrections to the current EEG, the ECJ ruling bears the risk of raising the cost burden for consumers. In the future, producers from other EU countries can take advantage of the green energy subsidy,” explained IW energy expert Esther Chrischilles, speaking with EURACTIV Germany.

“But if lawmakers take planned quantity restrictions in the future arrangement of green energy subsidisation seriously, and the ECJ’s ruling indicates a move toward Europe-wide auctioning of subsidisation allowances, this could lead to cost reduction,” said Chrischilles.

The justification for this would be stronger competition, because auctioning gives cheaper providers a chance – from other EU countries as well, said the energy expert.

A step toward a European energy market

In the end, the ECJ ruling could be an impulse for Europeanisation of green energy subsidisation, fuelling an ongoing conflict between the Commission and the member states that has been going on for years, said Götz Reichert. While Brussels has been pushing to extend the internal energy market to green energy subsidisation, the member states continue to insist on their national sovereignty on this issue.

For German Economic Affairs Minister Sigmar Gabriel, the ruling comes at an inopportune moment. Not long ago, he settled his disagreement with EU Competition Commissioner Joaquín Almunia over the green energy subsidies for energy-intensive industries. At the moment, Gabriel’s EEG amendment is under deliberation in the Bundestag.

“Precisely now, an unknown is coming into play, through the ECJ procedure, that could attack the EEG at its foundations,” said Reichert. The Commission is receiving a boost in its European green energy support scheme.

Sustainability researcher Felix Ekardt from the Research Unit Sustainability and Climate Policy is more relaxed concerning the ECJ’s upcoming deliberation. “For the EEG, not much would change for the time being, since a ruling is not a law with general effect, but rather only rules on a single case.”

But Ekardt said he could not imagine a feed-in compensation scheme with subsidisation for foreigners. Instead, he calls for a Europe-wide harmonisation of feed-in compensation. “We know that that more strongly promotes renewables,” Ekardt said.

Still, certain things must change regarding energy efficiency among sufficiency among all energy carriers, the sustainability researcher explained. “The most important instrument for this is politically-driven, gradually rising costs of fossil fuels: not only in electricity but also in heating, fuel and materials use.”

Background

Recently, the powerful employers’ group BusinessEurope called on European Commission President José Manuel Barroso to radically shift the EU's energy policy away from climate change mitigation towards cost-competitiveness and security of supply. [more]

But a EU summit dedicated on energy with the objective of lowering prices and boosting the Union’s industrial competitiveness, held on 22 May, ended up without major decisions. [more]

EU Energy Commissioner Günther Oettingerunveiled a document late last year on state intervention in power production that warns EU energy prices will continue to rise unless governments take steps to reduce green subsidies.

As most renewable energies are still more expensive than fossil fuels, a variety of support schemes have been put in place to accelerate their uptake and meet the EU's goal of sourcing 20% of its energy from renewable sources by 2020.

There was plenty of talk about how to integrate RES (and particularly on-shore wind) into existing energy systems. My question to the panel was: why do we subsidise some RES? Specifically on-shore wind. My point was that the reason on-shore wind still needs a subsidy is because project finance is still around 8% to 9% – this predicates a subsidy. However, at a time when base rates in the Euro zone are -0.5% (note the minus sign) one has got to ask: why is it that RES financing is left to private finance? (the banks have by and large left this scene).

In a recent blog I asked why the EIB was not undertaking large-scale RES financing at rates which reflect the utility level of the risk? If the EIB did, there would be no need for subsidy and the Aaland Island case would be irrelevant.

For those that are puzzled with respect to “private finance” this comes from, for example private equity groups, funded by high net worth individuals aka the rich and the very rich.

You can thus think of RES subsidies as a transfer of money from little people (i.e. you lot reading this comment and the article) to people who are rich/very rich/hyper rich. As already noted, EIB funding would remove this anomaly. But it won’t happen because the rich/very rich/hyper rich own the lobbyists who make sure that the people in the EIB (& the Berlaymont) “do the right thing”.

I need to add a PS to the above. My point about on-shore wind was supported by the Portugese generator edp who insisted that absolutely on-shore wind was cheaper than any other form of generation. The background note (on the right of the main article is thus quite simply wrong – as a matter of simple fact: PV is cheaper than any fossil generation in the Med’ basin, on-shore wind with cap factors above 25% is cheaper than any fossil generation.